VBCE Weekly Foreign Exchange Wrap Up for April 22 – 26, 2019 / Currency Forecast

Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca

The CAD was mixed this week gaining ground against the EUR and AUD while losing ground to the USD and JPY. USDCAD initially dropped from 1.3380 down to 1.3336 on Monday after oil prices surged 4% to a 6 month high after the U.S. reported that it will no longer waive sanctions on imports of Iranian oil starting May 2^nd. The pairing climbed above 1.3440 on Wednesday ahead of the Bank of Canada interest rate announcement. The bank held its key rate at 1.75% and concluded that "an accommodative policy interest rate continues to be warranted." In March, the statement read "the outlook continues to warrant a policy interest rate that is below its neutral range." This is a shift to neutral from the hawkish bias noted in January: The BOC "continues to judge that the policy interest rate will need to rise over time into a neutral range to achieve the inflation target. The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy." USDCAD climbed to 1.3522 after the BOC statement before falling back to 1.3457 during the press conference as governor Poloz indicated he felt the Q1 slow-down was temporary and that the economy was primed for a rebound. USDCAD tested 1.3517 on Thursday driven by broad-based USD strength that saw the USD index test a 2 year high. Again, trade above 1.3500 was limited to a just a few minutes and the rate eased lower towards 1.3475. U.S. headline Q1 GDP beat estimates Friday morning driving USDCAD up to 1.3495 before broad USD weakness took the pairing down to 1.3452. Some components responsible for the strong GDP reading were deemed to be temporary bringing concerns that Q2 GDP would be softer. GDP inflation data was exceptionally low prompting U.S. 10 year treasury yields to fall below 2.50% towards 16 month lows. USDCAD finishes the week at 1.3450 (Friday's low) effectively erasing Wednesday's post Bank of Canada gains. The pairing also closes the week below the 1.3465/70 level – the technical level that had contained USDCAD rallies over the past two months and subsequently broken during Wednesday's move to 1.3522.

Key Events for the week:

*USDCAD climbs towards 4 month high

*EURCAD falls towards 2 month low / EURUSD near 2 year low

*GBPCAD falls towards 2 month low / GBPUSD near 3 month low

*JPYCAD climbs towards 1 month high / USDJPY falls from 4 month highs

*AUDCAD falls from 4 month highs towards 1 month low / AUDUSD near 10 year lows

*Crude oil surges 4% to 6 month highs on U.S. announcement of Iran sanctions before falling 6.5% towards a 3 week low: range $62.29 - $66.56

*USD index (DXY) climbs towards 2 year high before falling back: range 97.27 – 98.33

*U.S. 10 year Treasury yields decline towards 16 month lows: range 2.49% - 2.60%

*Canada wholesale sales: 0.3% (exp 0.1% / prev 0.4%)

*U.S. new home sales: 692,000 (exp 650,000 / prev 662,000)

*Australia CPI Q1 y/y: 1.3% (exp 1.5% / prev 1.8%)

*Bank of Canada interest rate: 1.75% (exp 1.75% / prev 1.75%) https://www.bankofcanada.ca/2019/04/fad-press-release-2019-04-24/

*Bank of Japan interest rate: -0.10% (exp -0.10% / prev -0.1%)

*U.S. durable goods orders: 2.7% (exp 0.8% / prev -1.1%)

*Japan unemployment rate: 2.5% (exp 2.4% / prev 2.3%)

*Japan Tokyo CPI ex fresh food y/y: 1.3% (exp 1.1% / prev 1.1%)

*Japan industrial production y/y: -4.6% (exp -0.6% / prev -1.1%)

*Japan retail trade y/y: 1.0% (exp 0.8% / prev 0.6%)

*U.S. GDP Q1 annualized: 3.2% (exp 2.0% / prev 2.2%)

*U.S. GDP price index: 0.6% (exp 1.3% / prev 1.9%)

On Tap for Next week:

Tue Apr 30: China NBS manufacturing PMI: exp 50.5 / prev 50.5

Germany unemployment rate: exp 4.9% / prev 4.9%

Germany CPI y/y harmonized: exp 1.6% / prev 1.4%

Eurozone GDP Q1 y/y: exp 1.1% / prev 1.1%

Eurozone unemployment rate: exp 7.8% / prev 7.8%

Canada GDP (Feb): exp 0.1% / prev 0.3%

Wed May 1: UK Markit manufacturing PMI: exp 53.0 / prev 55.1

U.S. ADP employment change: exp 180,000 / prev 129,000

Canada Markit manufacturing PMI: exp 51.5 / prev 50.5

U.S. ISM manufacturing PMI: exp 54.8 / prev 55.3

U.S. Fed interest rate announcement: exp 2.50% / prev 2.50%

Thur May 2: China Caixin manufacturing PMI: exp 51.0 / prev 50.8

Germany retail sales m/m: exp -0.9% / prev 0.9% y/y: exp 2.8% / prev 4.7%

Germany Markit manufacturing PMI: exp 44.5 / prev 44.5

Eurozone Markit manufacturing PMI: exp 47.8 / prev 47.8

Bank of England interest rate decision: exp 0.75% / prev 0.75%

Fri May 3: Eurozone CPI y/y: exp 1.6% / prev 1.4%

U.S. Non-farm payrolls: exp 180,000 / prev 196,000

U.S. unemployment rate: exp 3.8% / prev 3.8%

U.S. avg hourly earnings m/m: exp 0.3% / prev 0.1% y/y: exp 3.4% / prev 3.2%

Technically, USDCAD is neutral / bullish. The pairing broke above the 1.3420-1.3465 resistance zone Wednesday morning after the Bank of Canada statement changed from a slight hawkish bias to a more neutral bias. After testing the 1.3522 level (the highest since Jan. 3^rd), USDCAD was unable to advance any further. Thursday saw a brief rally to 1.3517 while Friday's rally stalled at 1.3498 before turning lower and falling back below the 1.3465/70 level.

Topside targets to consider: 1.3475, 1.3500, 1.3525, 1.3575

Downside targets to consider: 1.3420, 1.3310, 1.3275, 1.3250